Ted Simons: Good evening and welcome to "Arizona Horizon." I'm Ted Simons. Joining me tonight are Jeremy Duda of the "Arizona Capitol Times," Mike Sunnucks of the "Phoenix Business Journal" and Dennis Welch of the "Arizona Guardian." The new legislative session begins this week. Governor Brewer kicks things off with her state of the state address. Jeremy, any surprises in this speech?

Jeremy Duda: Really the only thing is that there wasn't a lot of meaty policy stuff in there. It was a lot of legacy stuff, a very upbeat tone looking back at all the grim stuff in the last few years, and now our budget's balanced, we're all going to get along.

Ted Simons: The idea of buying back capitol buildings and the idea of working with the feds on forest thinning initiatives and this Vegas interstate, where did that come from?

Mike Sunnucks: It's very much a second term type budget. We fixed the government problems, I don't want to leave the office with having pawned the state capitol. So she wants to buy it back. Business folks have been pushing for the Vegas highway for a long time. That's a rough drive up there. I think it's one of the only major two cities that are close to each other that doesn't have a big truck route so people fly up there because the drive's so bad. That's a legacy thing. If it gets built, it might have her name on it in the end. It's funny she lambasts the government all the time for stimulus and immigration but we want to work with you on this highway and give us a whole bunch of money. We'll see how it works out.

Dennis Welch: If you look at this speech, it was a lot about the legacy because she did stand up and she took in very clear terms, she took credit for steering this state through what she called dark times. She said quote, Arizona has been saved. So she went from there, she transitioned from those types of statements to these big infrastructure things like the interstate 11. These are things with an eye to the future.

Ted Simons: The idea that Arizona has been saved and you, legislators were a part of it. A lot of folks either took issue with that or just at least perked up some ears.

Jeremy Duda: Well, the legislators knew which ones of them she was talking to and it certainly was the Democrats who take great umbrage with saying the state's been saved with $1.5 million in cuts to education and healthcare.

Dennis Welch: I think it was also too she was a little bit of a shot, too, to the Republicans who didn't want to help her with her 1-cent sales tax, get that referral to the ballot a few years ago because she said that was the plan. She took credit, we had a plan, that was part of her plan to get us through these dark times and it wasn't easy to get to the ballot. She worked on that thing for like a year before she was able to get the votes just to the ballot.

Mike Sunnucks: There was a little subtle knocks to Napolitano and certainly the economy, the housing market, the lack of improvement. There's been no solutions offered to that. Glossed over some of that and a lot of the pain that's gone with some of the cuts, Medicaid, that type of thing. I think that did perk some people's ears up.

Dennis Welch: You brought up Napolitano. This was a name that I think the governor intentionally omitted from her speech because a little context. Most of the speech was about looking at the past 100 years. We're celebrating 100 years of statehood this year. She mentioned a bunch of pioneers by name, most of them were male. She mentioned one woman, but didn't mention any of the prior three female governors of the state, including Napolitano, including Sandra Day O'Connor.

Mike Sunnucks: The dynamic with what her priorities are, we have a budget surplus, we're doing better, but the sales tax is ending and we'll see if that gets extended and we've got a bunch of business tax cuts that are kicking in aimed at bringing jobs here but that's going to reduce revenue in the short term. So everything's kind of muted. They don't want everyone to get ahead of themselves and say we can spend this money because we have a surplus. That's the backdrop of of her proposals.

Ted Simons: Let's talk about the governor's budget released, and now it looks as though it's $500 million more than the current year and she's looking for certain moneys going in certain directions. What are we looking at here?

Jeremy Duda: She's treading really carefully on new spending. Her big focus is one-time expenditures, one of the big ones is about $106 million to pay off the debt or put into an account to pay off the debt from pawning off the capitol, some money for school facilities, prison beds. One of the things she wants to give, 5% pay hike to state employees for this big personnel reform plan.

Ted Simons: With a caveat, though?

Dennis Welch: That is the big story that's going to come out of this budget proposal. She's trying to incentivize people to opt out of the state merit system. In return, it's going to be a lot of easier to fire you. That's the kind of caveat. To put it in more context, this will be the first pay raise a lot of state workers have seen in five years. The state has been, you know, really strapped over these years and hasn't given out many pay raises. Interestingly enough, the group of people who are exempt from this who will get the raise regardless are police officers.

Mike Sunnucks: They use the word at will in one of their budget presentations, like you can be fired for any reason, pretty much at any time. And so that's a big see change for folks in the public sector and we'll see how many people opt in, if that gets through. I assume it will go through in the legislature. We'll see what kind of reaction we get out of the unions.

Ted Simons: No tax increase as far as governor's budget is concerned, nothing saved for rainy day funds, either.

Jeremy Duda: Nothing for the rainy day fund. They say they're not anticipating another economic disaster but they're trying to save for this fiscal cliff in 2014, when the prop 100 sales tax phases out, we have to start paying for 350,000 more people on Medicaid they're expecting. So they want to save their money for that and make sure they have a few hundred million as a cushion for any unexpected disaster.

Mike Sunnucks: They keep talking about the economic disasters, everything's safe. A lot of Arizonans are having a rough time. People are underwater in their homes, the job market's still iffy and a lot of businesses are still sitting on their money. The revenue picture may be better but that may turn some folks off a little bit.

Ted Simons: And she said it, this 1 cent sales tax as far as she's concerned it's over and done with. Of course, it is over and done with. The longest it can go is three years. You have to re-up it. It's not willy-nilly. However, so much of the recovery has been aided by that particular tax. It's almost like this is the relative you really don't like but you love it because it's your relative and it's helped you along.

Dennis Welch: To that point, underlying all this budget stuff we're talking about, there's lots of numbers out there, it's all based upon positive like really positive projections out there. And the governor's people even acknowledged that. They said this is all really positive projections for the future. They ignored the fact of the potential of a double-dip recession. They even acknowledged that. What these numbers are based on is that continued growth.

Ted Simons: Let's talk about tax code changes is governor wants to see, everything from capital gains to the carry forward policy, which we can talk about and explain. But what are we seeing here?

Mike Sunnucks: It's not going to be as ambitious as the tax cuts they passed last year. But you're going to see some stuff around the edges, sales factor, which Intel gets now, it benefits companies, manufacturers that sell things out of state, they can claim it as a tax formula thing. They might extend that. It's basically the University of Phoenix type bill. She vetoed that last year. The tax cuts they passed and get that, capital gains is a big one the business community wants. Some kind of cuts, there's more bold plans to eliminate it. They say that will encourage investment. We'll see what see comes up with. Exemptions on business purchase equipment purchases, exemption is $68,000 now. There's some bold plans to expand that and really try to say okay we're going to give businesses a big tax break if they're investigating.

Jeremy Duda: There's a lot of lawmakers who want to pass other tax changes, more jobs bills as they like to refer to them, and Brewer's laid out some ground rules. A legislator wants to eliminate capital gains altogether and that would be more than $400 million a year, one of those ground rules is they put it must be reconcilable with the budget.

Dennis Welch: Part of the reason for that is like you said the 1 cent sales tax. We've got the jobs plan bill that was passed last year. Those tax cuts haven't even begun to kick up and they're going to kick in after 2014 when the sales tax goes away and that's another half a billion dollars of revenue that's going to be lost. There's not a lot of ability.

Mike Sunnucks: I think the underlying theme you'll see with all these tax proposals is businesses are sitting on a lot of cash, they haven't been hiring or buying equipment because of the uncertainty and if you move the tax code to encourage them to do that, you might see some more job growth.

Ted Simons: Last year, the governor a lot of these things she vetoed because the sales tax had not yet expired so that seems to be a factor here as well is it not? A lot of the ideas coming in from the legislature are going to be tough to get past her because of the ground rules.

Jeremy Duda: The biggest one that's been around for a couple of years is absolutely no tax cuts that will be paid for out of the general fund while we're taxing people more sales tax to pay for all the education and healthcare cuts that we've had.

Mike Sunnucks: A conflicting dynamic. All Republicans down there that like tax cuts that want to see growth but they've got a big set of tax cuts and if they come back to them and ask for too much, you'll get the reaction, you guys got all this last year.

Ted Simons: We like to see this in piecemeal or how is this going to be pushed through?

Jeremy Duda: The governor is talking about doing it piecemeal. I know the house spokesman is working with the governor on that. So he probably won't see some of the disagreements we've seen in the past on that end.

Ted Simons: That carry forward idea, which is the idea, first year losses, it's now spread over five years. The feds say 20 years or something like that, and we want to find somewhere in the middle?

Mike Sunnucks: We could find some place in the middle or match the federal tax break. I think you see the business folks push for things like that, too. If the feds have a tax break, we can piggyback on that with the same rules for the state and that encourages businesses.

Jeremy Duda: It's funny on a lot of these Brewer tax plans, the numbers really aren't solidified. They don't even have general terms on a lot of them, the capital gains, the carry forward. So far it seems like they have no idea where they're going to set the numbers. And the governor didn't mention any fiscal impact from any of this stuff. It sounds like they're trying to figure out how much money this thing is going to cost them.

Mike Sunnucks: The sales tax is $900 million, and you're going to see the education folks and a fair amount of even Republican folks look at that and say can we really afford to let that go and maybe we tweak it to see where the money's going to go next time. That's really sitting out there as kind of the big person in the room there.

Ted Simons: With that sitting out there, the $900 million gorilla, legislature begins its session here, budget surplus, all eyes are on that.

Dennis Welch: This week was kind of confusing. One thing was people were a little bit more attuned to what they're going to be doing politically because a bunch of people announced they're going to be running for Congress. I know we'll get to that here in a minute but also I think people, too, were trying to figure out who they're going to be running against with redistricting wrapping up. That's the stuff we kind of watched a lot the first week of the session.

Ted Simons: How much impacts what goes on, the fact that it's an election year and a lot of folks are trying to figure out who they're going to represent the next time and whether they're going to jump into a congressional race or not.

Dennis Welch: So many people eyeing congressional runs and so many other people like all of a sudden, they're drawn into these districts with people, you know, that they used to be friends with, now they've got to decide whether they want to stay in their legislative district, move in their legislative district. I think it's going to have a big impact.

Mike Sunnucks: What to do with the surplus money. They've been dealing with these deficits, they're fiscally hawkish down there. They're depending on a sales tax that might go away and they've got this kind of windfall and they're not sure how to spend it. I think there's a lot of uncertainty philosophically.

Ted Simons: How are they going to work with the governor? What kind of relationship's going on there do you think?

Jeremy Duda: It remains to be seen. When Tobin came in, he and the governor got off to a rocky start. She called the special session and Tobin threw down the gauntlet and said we're not going to do this and of course you ask them about it and they say that's in the past. But, you know, politics -- not that I'm suggesting that politicians keep grudges or anything.

Dennis Welch: We're starting on a different leadership team, really quick story about the new Senate president. The other day, I saw him kind of wandering around by himself down at the capitol. He stopped at the elevator, saw a couple of reporters, complimented a few staffers and then walked up the stairs by himself. Now, I can tell you, Russell Pearce, you would never have seen that. He always walked around with an entourage. He never made himself that available to the press. I think it speaks a lot to the difference in styles between these two and I think he's going to be someone who's going to be easier to work with.

Mike Sunnucks: You can make an argument that Russell Pearce was the same political level as the governor in this state, in terms of the media, the attention, the entourage and the personality. But Russell was a high-profile guy. He was a very powerful guy and he enjoyed that kind of attention, and that may change the dynamic when you have a governor who has all the trappings of that office versus some kind of lower-profile maybe mellower legislator.

Ted Simons: It will be interesting to see what bills wind up getting hurt, pushed in these things and wind up on the governor's desk. David Lujan replaces Kyrsten Sinema, leaving and running for Congress. A surprise because I know Lujan did not make any friends when he missed that bill.

Dennis Welch: There are still people who are mad at him for not sticking around to vote for Senate bill 1070. The most significant piece of immigration that we've seen in the past 20 years. He took a walk on that vote a couple of years ago. And so when his name came out as somebody who was going to replace Sinema, a third of the Senate Democrats, three, there's only nine of them, came out and signed a letter saying we want somebody else. They were endorsing a former state representative, Ken Clark, for the job. But the supervisor went ahead, picked him anyway.

Ted Simons: He's launched a repeal of 1070.

Dennis Welch: And it was really funny, everybody saying we're going to get along, we're going to do this and that and Steve Galliardo, one of the senators who signed this letter in opposition to him, he's got the bill that wants to repeal 1070. You know, there was some talk about Lujan cosponsoring the bill. I went and talked to Mr. Galliardo about that, he said the bill's going to get dropped.

Mike Sunnucks: It will be interesting to see what happens with immigration. They've run so many bills. You had some of the bills left. Has Elvis left the building on that or will democrats bring it back up and say this is a winner issue for us. That's kind of treacherous. I don't know if you want to bring immigration up too much if you're a democrat.

Ted Simons: Or is Elvis on the train that just left the building, which is too much to think of? Ron Gould announcing for congressional district 4. That is going to be quite the Republican primary.

Mike Sunnucks: You've got Gosar who's moving there from Flagstaff, he's moving out of district one because he thinks he's going to lose to Anne Kirkpatrick and the sheriff, a big immigration hawk, that's a rural district. See who can get out the vote, see who energizes the base there. It will be really interesting.

Dennis Welch: Two words: Trench warfare. This is going to be a really bruising primary with these people. They've all shown the ability, at least with Mr. Gould and Babeu, they've got no problem going after each other and they've already started going after each other. In their first opportunity to talk about Mr. Gould getting in, the sheriff took a swipe at Gould's profession. Gould is a air conditioner repairman and they kind of took a swipe at that.

Mike Sunnucks: Most people don't like air conditioning repairmen. Ron Gould's very personable, very plain spoken, kind of independent-thinking conservative. That may appeal in that district. That thing is so spread out, running media ads in Phoenix --

Dennis Welch: The wildcard in this race is speaker Andy Tobin, who's been flirting with the idea of getting in. He's really popular in Prescott and those areas. Watch out for that.

Ted Simons: Interesting. The governor basically drops the medical marijuana lawsuit. Talk to us about this.

Jeremy Duda: She said she was going to refile that but it pretty much seemed like a sore loser. The judge made it clear about how she felt about the governor's thinking about that. She said I'm not going to refile it. I'm going to direct the department of health to start processing the applications. They won't issue any until this other lawsuit in the state court is finished. But one thing that's interesting even once they start doing that, you're going to see problems in Maricopa county because bill Montgomery is one of the people leading the charge against medical marijuana. His advice to the board of supervisors has been don't allow any zoning for these dispensaries and he says even if this lawsuit goes away, they will have to sue Maricopa county to get dispensaries.

Mike Sunnucks: If any of these opponents had come out against this thing, they probably would have lost. Only won by a hundred votes, a couple of hundred votes, and if they put any money towards this, we wouldn't be going through this. Who cares if the people have spoken. Let's continue a roadblock.

Dennis Welch: I'm interested on how smart politically that is for Mr. Montgomery to go after, to look for back door ways to stop this law. This was a voluntary-approved initiative -- voter-approved initiative. I think the governor's handling of trying to stop the medical marijuana from going forward in the first place was pretty unpopular.

Ted Simons: She's not saying whether or not she agrees or disagrees with the policy. She's saying she's concerned about state workers being portfolio -- being prosecuted. She wants clarification, which she probably should have gotten in the first place.

Mike Sunnucks: The few other states that have passed these things, I don't remember federal agents coming in and arresting or sanctioning state employees.

Dennis Welch: It's never going to happen. There's no indication. The previous attorney general, Dennis Burke, he said he wasn't going to go after this stuff. I would never see them doing something like that.

Ted Simons: Don Carden is leading the commerce authority not along -- we hardly knew ye. He was kind of the big wheel there and now the big wheel's taken off. What's happening here?

Jeremy Duda: I'm surprised that the meeting, I think everybody was getting packed up and ready to leave. He got a huge compensation package, a $300,000 a year, a $50,000 signing bonus he gets to take with him, vehicle allowance, all this stuff.

Ted Simons: So he gets that compensation? I thought he was leaving a lot of pension and stuff on the table.

Jeremy Duda: He's going to leave his big annual salary on the table but he gets to take that $50,000 signing bonus.

Ted Simons: And the commerce authority is still controversial because of the idea that some folks, especially conservative Republicans are saying you're playing favorites.

Mike Sunnucks: They're still figuring out about the bonus, if he had to stay a certain amount of time, maybe it will be prorated. It is kind of controversial because you've got a private board with a lot of C.E.O.s and developers, sports owners and they and Brewer picked Cardon to run this thing and they have a fund to attract businesses and people are paying attention to who they attract, where those businesses land and if there's any tie-ins with the board. They want a more aggressive economic development policy like you see out of some of the southern states, Virginia, Texas, who have these types of things and they think we've got to have those things to be able to get big high-wage jobs.

Dennis Welch: At the end of the day, this board is going to be judged on how successful they are. At some point they're going to have to justify their own existence, whether that's a year from now, a few years and show we did this, this, and this.

Ted Simons: I thought it was interesting he left right after the announcement of his Silicon Valley bank moving to Tempe, moving into I don't know where in Tempe but I thought it was interesting. That was announced and not long later, he says I'm going back to real estate.

Mike Sunnucks: He was in the commerce department for a little while, went through all the transition.

Dennis Welch: Maybe he didn't like all the media attention. Maybe when it was announced how much money a guy was making.

Mike Sunnucks: $300,000 is a little -- it's a big raise from what he had at the commerce department and it looks bad because he had the $180,000. But the other economic development folks throughout the country will make something around that for some of the bigger organizations, and the bonus hardly compares to what sports athletes get.

Ted Simons: Real quickly, we've got about a minute left, any surprise at all that the Tucson district suspended the Mexican-American studies program, considering what the judge said? It seemed like that was a done deal.

Mike Sunnucks: Absolutely. That will be a feather in his cap when he runs in the Republican primary for his next office.

Ted Simons: Is that a feather in anyone's cap who was against this particular district? Because they don't have too many friends down.

Jeremy Duda: If depends on who you're running for. There's only one board member who voted against spending that and there's a lot of popular sentiment for that among that program's supporters but they didn't have a choice. They are looking at losing something like $20 million in funding.

Dennis Welch: The guy's going to take this as a big feather in his cap is tom horn in a couple of years when you start looking at who's going to be running for governor. He was really vocal in dismantling this program and in part, he used this a lot to get elected to AG.

Ted Simons: We should mention that the judge in the case did -- the teachers they said, we're not going with that one but the students do have standing in the sense if they want to look at their first amendment rights. The case may still continue but again, you're talking 15 some odd million dollars for this year if you don't get rid of it. They got rid of it.

Mike Sunnucks: They're already strained enough. Why fight that.

Ted Simons: Good stuff. Thanks for being here. We certainly appreciate it.